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How Do Business and Financial Cycles Interact?

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  • Marco Terrones
  • Ayhan Kose
  • Stijn Claessens

Abstract

This paper analyzes the interactions between business and financial cycles using an extensive database of over 200 business and 700 financial cycles in 44 countries for the period 1960:1-2007:4. Our results suggest that there are strong linkages between different phases of business and financial cycles. In particular, recessions associated with financial disruption episodes, notably house price busts, tend to be longer and deeper than other recessions. Conversely, recoveries associated with rapid growth in credit and house prices tend to be stronger. These findings emphasize the importance of developments in credit and housing markets for the real economy.

Suggested Citation

  • Marco Terrones & Ayhan Kose & Stijn Claessens, 2011. "How Do Business and Financial Cycles Interact?," IMF Working Papers 2011/088, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2011/088
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    Keywords

    Financial crises; Recessions; Credit crunches; asset busts; booms; recoveries; financial crises.; recession; financial cycles; financial crisis;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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